FHA Updates Reverse Mortgage Program to Protect Non Borrowing Spouse

The Department of Housing and Urban Development today issued a mortgagee letter outlining changes to its reverse mortgage regulations and requirements that will protect non-borrowing spouses for new case number assignments on or after August 4.

For those new case number assignments, non-borrowing spouses will be able to remain in their homes, provided they are married to the borrower at the time of closing and their spousal status is disclosed at that time via a certified letter.

Non-borrowing spouses will be able to defer the loan’s due and payable status under the terms of the loans in cases where the named borrower passes away, according to Mortgagee Letter 2014-07. The the certification must be submitted annually with additional documentation should the named borrower pass away or move from the home permanently.

The agency acknowledged there have been two interpretations of the Home Equity Conversion Mortgage statute, one of which considers the non-borrowing spouse as a homeowner, and the other, which does not.

“FHA continues to believe that its original interpretation gives full force and effect to the intent of the statute. Nevertheless, recent events have advanced another possible interpretation of Subsection 255(j),” HUD states. “This alternative interpretation would extend the mortgage insurance eligibility requirements concerning the safeguard to the mortgagor and any Non-Borrowing Spouse of the mortgagor, at the time of origination.”

HUD said in the mortgagee letter that it will be updating principal limit factor tables, but has not yet said when the new tables will be available.

“Where a HECM mortgagor has identified a Non-Borrowing Spouse, the mortgagee must base the Principal Limit on the age of the youngest mortgagor or Non-Borrowing Spouse,” HUD states. “Mortgagees will be required to use Factor Tables based on the age of the youngest Mortgagor or Non-Borrowing Spouse, if applicable.

The changes apply only to new borrowers, as HUD said it is unable to make changes to existing loans that have non-borrowing spouses present. HUD will also be submitting the new rules to the Federal Register where they will be open for public comment.

AARP has filed a lawsuit against the housing department representing non-borrowing spouses. HUD has been ordered to provide relief to several plaintiffs named in the case. It has also filed a class action lawsuit with the class yet to be certified.

This week, the agency said it is offering a 60-day extension for non-borrowing spouses facing foreclosure.